Copper, oil, steel analysis roundup

Copper, oil, steel analysis roundup
Written by:
Michael Harris
27th September, 19:37
Updated: 27th September, 19:38
  • India join the EU in attempts to slow down the import of aluminium and copper into the country
  • Crude oil prices closed 1.92% lower this week after gaining nearly 10% to close above the $40 mark
  • U.S. steel production rate is 20.1% down year-to-date, compared to the same period from last year

Copper prices fell 4.65% this week to follow the vast majority of other commodities lower. Crude oil prices also closed lower, nearly 2%, but still managed to force a close above $40 per barrel. Silver price crashed nearly 15% to log the 2-month low.

Copper imports limited

India aims to slow down the import of aluminium and copper into the country. On the other hand, oil prices moved up as several oil companies failed to reach their output cut targets. Also, the U.S. steel sector’s capacity utilization rate plunged after being on the rise for several past months.

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India is looking to follow the footsteps of the European Union and limit the influx of aluminium and copper entering the country. For this reason, India has issued an import surveillance program that will demand from importers to record and report their import levels, said Stuart Burns from MetalMiner. 

“Only by accumulating hard data can the country develop sensible policies, promoters of the scheme argue,” he said.

“As such, China, Japan, Malaysia, Vietnam and Thailand are among the major exporters of copper. Those countries accounted for 45% of India’s $5 billion in copper imports for 2019-2020, the article reports.”

Copper mine output was also hit by the pandemic, especially in Peru. The output slipped 1% in the first half of the year, according to reports by the International Copper Study Group. Mine production in Peru plunged by 20% in H1 2020. Moreover, the output levels sank 38% from April through May, after shutdown measures because of the pandemic and unfavourable weather conditions. 

Copper weekly chart (TradingView)

Burns said the logistics sector is full of uncertainty and high expenses. Individuals who cheer for the idea of a “decoupling” of the U.S.-China trade relationship, can slow down as this will likely be the case for the time being.

“A fair part of the current pressure on shipping space and costs is coming from increases in trade between Asia and the U.S.,” Burns said.

“The pandemic has spurred demand for Chinese-made goods from electricals like laptops and associated electronics to PPE equipment, including masks and gloves.”

Copper prices dipped over 4.5% to close below the important support line at $3.00. The bearish close has now opened the door for a deeper correction to $2.80 and $2.68.

Focus on oil output levels

Oil prices have recovered from its low levels earlier this year, but still lower than its 2019 levels, even after OPEC+ ordered output cuts. While this decision has contributed to price stabilization, some oil manufacturers haven’t strictly complied with reduction mandates. 

“The incentive to cheat is huge,” Burns explained. “The sense by many smaller players that they suffer from output agreements more than the ‘big boys’ breeds a sense of resentment at times.

Burns noted that this is especially the case with parties that have nothing else in common except an intention to increase oil revenues. 

Crude oil weekly chart (TradingView)

“So, the Saudi oil minister’s thinly veiled dressing down of OPEC partners UAE, Nigeria and Iraq for overproducing is met with protestations but little in the way of immediate compliance.”

Brent crude has bounced back in the past three months and stayed near the $40 a barrel mark, after oil traders pushed the “black gold” under $13 a barrel earlier this year. Crude oil prices closed the week 1.92% lower, a week after gaining nearly 10% to close above the $40 mark. 

In case the fundamental aspect of the industry improves, crude oil prices could eventually exceed $50 before the end of the year. 

Steel capacity utilization rate falling

The United States steel industry capacity utilization rate has also dipped last week, after being on the rise for most of the time in the past several months. For the week through September 19, the steel capacity utilization rate dropped to 64.5% from 65.1% last week.

U.S. steel production rate is 20.1% down year-to-date, compared to the same period from last year. In spite of weak domestic demand, India is now a net exporter of steel to China and other countries.

Steel Rebar weekly chart (TradingEconomics)

Indian steel manufacturing companies exported around 80% of their output in the period from April to August. During that same period, China accounted for 45% of India’s total steel exports. 

Steel prices have fallen in September, just a few weeks after printing the annual high near $3,800.

Summary

India is planning to curb the import levels of aluminium and copper into the country just like the E.U. Elsewhere, oil prices have bounced back up after some oil producers failed to hit their output reduction targets. Furthermore, the U.S. steel sector’s capacity utilization rate also dipped after climbing for several past months.

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